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Clarity

Justin Gilchrist

Cheshire, England

Former founding partner and growth lead at Centurica.com - the largest agency dedicated to offering investors advice and due diligence for internet business acquisitions. Also the author of Digitally Wed - Everything you need to buy a profitable internet business (https://exitplan.co). Generally an all round data nerd with a passion for buying, selling and strategy in online business.

Answers

As your question is a little open-ended, I’ll avoid going too in-depth, but I’ll try to give an overview based on my own experience running E-commerce stores with multiple dropship and non-dropship suppliers.

The first question you need to ask yourself are your reasons for wanting multiple suppliers rather than just one. This will give you an overall criteria to assess whether or not you need a particular supplier in your network, because more relationships = more time and resource to manage which inevitably equals more cost. The main reasons are

1) Availability of new Products
New suppliers will allow you to broaden your product offering. I would tend to avoid any suppliers that carry a very narrow range of SKUs (product lines). The exception is suppliers that sell a unique product that will sell significant units at a volume, or an average amount of units at high margins.

2) Redundancy
In the event a supplier of a key product runs out of stock, increases their prices or fails to maintain the service quality you’ve agreed upon, it’s useful to have alternative options. If anything, it gives you confidence to negotiate on price without fear of losing everything if it all goes wrong.

3) Cross country / state routing
Having multiple suppliers set up in all of your key countries will greatly reduce shipping costs and time-to-customer, which in turn increases customer loyalty.

Finding Suppliers and Original Products

From experience, the best dropship suppliers are those that don’t advertise the fact they dropship. In fact, the suppliers who will usually put the phone down on anyone who asks that question will usually mean you’re onto something, as the barriers to entry for that particular niche are likely to be high.

Also, original products don’t have to be products that aren’t sold anywhere else, just products that aren’t widely available to resellers. This means getting to know your niche, finding out what’s in demand, and making contacts amongst sellers.

Here are a few places I’ve found successful:

- Trade Shows and Exhibitions.
As well as being a tax deductible business trip (the kind of ‘business trip’ where the nights are more important than the days!), Exhibitions and Trade Shows are packed with new product ideas, and manufacturers and retailers keen to make more sales. Try to find overseas exhibitions; as well as the benefit of seeing a new country under the guise of work, you’re also likely to find products that currently aren’t being sold in your home-territory, giving you a significant head start. Frankfurt in Germany is the exhibition capital in Europe and well worth visiting if you’re based in the US and there’s a relevant exhibition taking place.

- Niche / Industry Print Magazines.
Assuming the newspaper and print magazine industry still exists when you read this, the classifieds at the back of these publications usually feature small independent manufacturers with good products and poor marketing skills.

- Private Advertisers on related blogs and forums.
Use a tool like Whatrunswhere or Adbeat to find advertisers in your niche who produce a product. Many will already have an affiliate program in place, but will often also consider a dropship arrangement if you speak to the right person.

Technology
There are platforms such as Hybris or Saleswarp that can do clever things with supplier management and inventory load balancing, but I’m assuming you’re looking for an overview at this stage and nothing too in-depth.

Personally, I’ve always started with a one size fits all solution (basic supplier chain management built into the ecommerce platform) and as the business grows I’d usually move to something more custom to manage things like

The cost to have something similar developed will be relatively expensive, so it’s worth starting lean and using something off the shelf in the early days.

Agreements
I could talk about SLAs and aiming to establish exclusivity or territory rights, but apart from being expensive to setup, it wouldn’t be realistic to expect this until you have some reputation in your industry.

In the early days, it’s simply a matter of selling in volume, paying for your goods on time and not being a jerk when you need something done. Taking your supplier’s sales rep out to lunch once in a while never did any harm either!

The unfortunate misconception about SaaS apps is that the value is in the code. It rarely is.

With the arrival of cloud computing, and languages like Ruby on Rails (and even PHP these days) that can quickly build an app from re-usable 3rd party code, the app itself has almost no value unless you’ve found a way to achieve something technically that few others could.

A SaaS company’s value is therefore primarily in it’s

- Team – a good team of engineers can be acqui-hired while a good founding team will often be easy VC bait.
- Users – even if they’ve not yet been monetized.
- Cashflow – even if the company hasn’t yet reach profitability

The reality is, without at least one of these three things, you have nothing.

Buyers who would pay for your idea, could quite easily pay the same amount for the development of what you already have minus the flaws.

If you believe the product is solid, but you’re pre monetization with a good idea and bad business model, then my best advice would be to develop the business model first. Do a search for interviews by Jason Cohen and Eric Reis. They’re the best speaker I know on the topic of customer development and how to find what works.

Reviews

Justin is a class act. Gave me some valuable insights that will save me HOURS of heartache regarding buying under-monetized, high traffic sites (that it's just not as feasible today). He has clearly done many deals, which is exceedingly valuable. Will definitely be returning when more acquisition needs come up. Thank you Justin!

Incredible conversation with Justin. Dropped so much relevant and very useful info on the buying process of the business we are acquiring. Would highly recommend him for anyone going through this process.

Valuable conversation, but on top of that, had a great time talking with Justin. Helped me think through some key questions for e-commerce acquisitions (mainly single brand vs multi brand) as well as gave some great ideas on the overall attitude and strategy for how to handle an acquisition for the first bit of time.

Superb investment. He gave us exact, specific, precise numbers to help us with our S.M.A.R.T. goal setting, to get a sense of industry averages, multiples, creative financing ideas, deal flow strategies, post acquisition operations and essential all core 80/20 aspects of a profitable transation. Would invest again in a heartbeat!